Banxico Raises GDP Forecast Amid Lessened Inflation Risk

Mexico’s central bank raised its growth forecast for this year and said the risk from inflation has diminished, according to its quarterly inflation report published today.

Banco de Mexico boosted its estimate for the expansion in Latin America’s second-biggest economy to a range of 3.25 percent to 4.25 percent from its prior projection of 3 percent to 4 percent, according to the report. Inflation risks have abated and consumer prices will probably increase at the lower end of the bank’s 3 percent to 4 percent anticipated range, the lender said.

Mexico’s central bank board kept the key interest rate unchanged at 4.5 percent for a 26th consecutive meeting last month, while signaling willingness to cut should global monetary policy remain loose and European financial markets stabilize. Since then, inflation has slowed for a third consecutive month in April, while stocks worldwide have fallen after Greece failed to form a new government.

The annual inflation rate fell to a six-month low of 3.41 percent in April from 3.73 percent the month before, the national statistics agency said May 9.

Even before that, economists had cut their year-end inflation forecast to an average 3.68 percent this month from 3.78 percent in April and 3.88 percent in March, according to a monthly survey by the central bank.

The central bank, which targets inflation of 3 percent, plus or minus one percentage point, holds its next policy meeting on June 8.

The yield on inflation-linked securities due in December 2012 known as Udibonos, fell 113 basis points, or 1.13 percentage points, to 0.64 percent this month through yesterday.

The peso has declined 5.5 percent in the month to date, the fourth-worst performance against the dollar of 16 major currencies tracked by Bloomberg, as the crisis in Europe has set off renewed volatility.

The peso rose 0.4 percent to 13.7825 per dollar at 1:21 p.m. local time from 13.8363 yesterday.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Eric Martin at emartin21@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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